Pharma industry welcomes tax incentives for R&D

Tax incentives given by the Budget for research and development made the Indian pharmaceutical firms sport a smile but they are left wondering if the hike in excise duty to 10 per cent on all non-petroleum products will be applicable to them.

Finance Minister Pranab Mukherjee proposed a weighted tax deduction on expenditure incurred in in-house research and development activities to 200 per cent from the current 150 per cent in the Budget.

"We welcome the government's move to increase weighted tax deduction to 200 per cent as research and development activities is a must and in pharma sector, where it is most urgently required," Indian Drug Manufacturers Association Executive Director Gajanan Wakankar said.

However, lack of clarity on whether the pharma sector would also be covered under the increased excise on all non-petroleum products from 8-10 per cent, held back the sector from celebrating.

Currently, the pharma sector attracts 4 per cent excise duty after CENVAT was cut by 4 per cent in December 2008 as part of a stimulus package.

"We are waiting for more clarity over the issue and then only we will assess the impact," Pharmaceutical exports council (Pharmaexcil) founder Chairman D B Mody said.

Piramal Healthcare Director Swati Piramal also said, "We are still looking at the (Budget) papers."She, however, said the tax incentives on R&D was long overdue.

"We were demanding tax deduction on R&D for the last five years and this is a welcome move as India is lagging behind other countries in R&D, such as China, Israel and others," Piramal said.

Consulting firm Ernst & Young Partner Life Sciences Practice Hitesh Sharma said, "This is a welcome move to incentivise and promote India as a R&D destination."

Mukherjee had also announced giving tax incentives on contribution to scientific research association, IITs and approved national laboratories. He proposed 175 per cent weighted deduction on such contribution, up from 125 per cent earlier.

Expressing his displeasure over the Budget, Fortis Healthcare Managing Director Shivinder Mohan Singh said, "From the healthcare perspective, we don't see any bold initiatives in this Budget, except for some reduction in duties on medical equipment.